From surviving to thriving as a hardware startup – ProWellTech
Six strategies from Minut CEO Nils Mattisson
When a friend forwarded this tweet from Paul Graham, hit near home:
Startups are prone to something akin to infant mortality: before they’re established, something that goes wrong can kill the company. Hardware companies appear to be prone to infant mortality throughout life.
I think the reason is that the evolution of the product is so discontinuous. The company has to keep shipping and customers keep buying new products. Which in practice is like relaunching the company every time.
I don’t know if there is an answer to that, but if there was a way for hardware companies to evolve more like software companies do, they would be much more resilient.
Looking back on our startup trip to Minut, I remember several moments when we could have died. However, by surviving several near misses we have learned to deal with these challenges and have become more resilient over time. While there will never be a completely comprehensive answer, here are some of the lessons we’ve learned over the years:
Subscription revenue is the only revenue that matters
While it’s possible to sell hardware on a margin and make significant upfront revenue, it’s not a sustainable business model for a company that requires both software and hardware. You cannot cover a permanent commitment with a limited amount of money.
Many hardware companies don’t consider subscriptions early enough. While it can be difficult to command a subscription from the start (if you can, you may have waited too long for it to start), it must be in the plan from the start. Look for markets where paying for subscriptions is the norm rather than markets that operate on a one-time sales model.
Set high margins and earn them over time
It’s tempting to set low prices for hardware to attract customers, but you should initially do the opposite. Margins allow you to correct errors. A missed deadline could mean you have to opt for air freight rather than ship. Parts may need to be scrapped or purchased dearly in a supply crisis. Surprises are rarely good and you don’t want to use your venture capital to pay for them.
Healthy margins can also be used to cover marketing costs as you learn what kind of messaging works and what channels you can sell. If that’s not reason enough, starting with relatively high prices will help you avoid another common mistake, selling too much at launch.
This might seem counterintuitive – why wouldn’t you want a big hit outside the gate? The reason is that you will inevitably make mistakes with your first few rolls and the bigger the throw, the greater the hit. There are many companies that have had incredible crowdfunding success and then failed to deliver even the first units. Startups tend to chase growth at all costs, but for hardware startups in the early years, there’s such a thing as a too good thing.